Epidemic’s econ impact most severe in H1: CCDC

As China’s all-out fight against the novel coronavirus outbreak continues, a recent research report by China Central Depository & Clearing Co. (CCDC), a state-owned financial institution and the country’s main interbank clearing house, gives a tentative diagnosis on how the epidemic will affect the world’s second largest economy.

Its gist? The outbreak will have the most severe consequences in the first and the second quarters of 2020 while the full-year economic impacts depend on how long the epidemic lasts.

The report highlights the hurdles faced by China’s labor-intensive industrial sectors, especially the secondary and tertiary industries. As workers postpone their return to work, the tertiary industry will be particularly affected, the CCDC report says.

Given the tertiary industry’s huge contribution to China’s GDP, nearly 60% at the end of 2019, CCDC warns that the slowdown may significantly weigh on China’s overall GDP.

Due to the outbreak China will also face a consumption slump, investment postponement, and export supply disruption, adding upward pressure on inflation, according to CCDC.

The report warns of a downward shift of long-term yields in the bond market and greater fluctuations of the RMB exchange rate in the near term.

However, CCDC remains confident that China will win its battle against the outbreak.

It advocates counter-cyclical fiscal and monetary policies and an appropriate expansion of government fiscal spending to make more maneuver space for economic recovery.

China should also maintain a reasonable and adequate liquidity level in the short term, CCDC says.

China’s central bank announced on Thursday that it will lower its benchmark lending rates, shortly after its move on Monday to cut the interest rate. Both decisions will help lower financing costs for enterprises and support their production resumption.

Click to download the report:

Analysis on the Economic Impact of the Novel Coronavirus Outbreak and the Policy Response